Biodiversity: New challenge for the financial services industry

Thu, 07 Jun 2007

A new report highlights the biodiversity business case for the financial sector - the next big challenge after climate change?

Photo: Flickr.com

The financial sector cannot afford to ignore the risks associated with biodiversity. That is the message from a new report “Biodiversity, the Next Challenge for Financial Institutions”, published this week by the World Conservation Union (IUCN).

The report’s author, Ivo Mulder, surveyed 26 commercial and investment banks, NGOs and other stakeholders – more than two-thirds believe the financial sector is exposed to significant reputational risk if it invests in companies which have a detrimental impact on ecosystems.

“Continuous decline of global species diversity is not only leading to more concerned conservationists – the private sector is also starting to feel the implications,” Ivo Mulder said. “Financial institutions, such as banks and insurance companies, need to be able to determine which of their client companies are at greatest risk, in order to avoid taking on the same risks themselves through their lending, investment and insurance activities.”

Increased pressure from NGOs, more regulations from governments keen to protect the natural environment and rising consumer expectations all mean that financial institutions must take more heed of biodiversity, the study found.

One example is the recent EU Environmental Liability Directive, which came into force on April 30. The new legislation holds companies liable for damage to flora and fauna, water resources and natural habitats and obliges them to pay for damages that cannot be avoided. The potential financial implications are significant not only for companies using these resources, but also the banks and insurance companies that service them.

The report also cites the example of Associated British Ports, which suffered a 10 per cent decline in its share price in April 2004, after the UK government rejected plans for a new container terminal on the South coast. One of the major factors behind the government’s refusal was the potential impact of the terminal on local wildlife.

A few banks already consider biodiversity risks when deciding which companies to invest in. In February 2007, Rabobank established ten guiding principles for its risk analysts – these include environmental pollution, depletion of natural resources and cruelty against animals.

But it is not all about risk, the report reassures. There are growing biodiversity business opportunities for financial institutions, such as sustainable biofuels, along with markets for ethically-certified commodities like fish, timber and organic food.

“There needs to be a big effort to make the financial sector more aware of biodiversity issues,” said Ivo Mulder. “Perhaps a Stern-like review of the economic costs of biodiversity loss and the financial benefits of conservation could be one trigger.”

Created in 1948, the World Conservation Union (IUCN) brings together 84 States, 108 government agencies, 800 plus NGOs, and some 10,000 scientists and experts from 181 countries in a unique worldwide partnership. The Union’s mission is to influence, encourage and assist societies throughout the world to conserve the integrity and diversity of nature and to ensure that any use of natural resources is equitable and ecologically sustainable.

The Union is the world's largest environmental knowledge network and has helped over 75 countries to prepare and implement national conservation and biodiversity strategies. The Union is a multicultural, multilingual organization with 1,000 staff located in 62 countries. Its headquarters are in Gland, Switzerland.